McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Chapter 2 Competitiveness, Strategy, and Productivity

2-2 Chapter 2: Learning Objectives You should be able to: –List and briefly discuss the primary ways that business organizations compete –List five reasons for the poor competitiveness of some companies –Define the term strategy and explain why strategy is important for competitiveness –Contrast strategy and tactics –Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two

2-3 Chapter 2: Learning Objectives (contd.) You should be able to: –Describe and give examples of time-based strategies –Define the term productivity and explain why it is important to organizations and to countries –List some of the reasons for poor productivity and some ways of improving it

2-4 Competitiveness Competitiveness: –How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services –Organizations compete through some combination of their marketing and operations functions What do customers want? How can these customer needs best be satisfied?

2-5 Hierarchical Planning Mission Goals Organizational Strategies Tactics Functional Strategies

2-6 Mission, Goals, and Strategy Mission –The reason for an organization’s existence Goals –Provide detail and the scope of the mission Goals can be viewed as organizational destinations Strategy –A plan for achieving organizational goals Serves as a roadmap for reaching the organizational destinations

2-7 Tactics and Operations Tactics –The methods and actions taken to accomplish strategies –The “how to” part of the process Operations –The actual “doing” part of the process

2-8 Strategy Formulation Effective strategy formulation requires taking into account: –Core( distinctive ) competencies –Environmental scanning SWOT Successful strategy formulation also requires taking into account: –Order qualifiers –Order winners

2-9 Operations Strategy Operations strategy –The approach, consistent with organization strategy, that is used to guide the operations function. Decision AreaWhat the Decisions Affect Product and service designCosts, quality, liability, and environmental issues CapacityCost, structure, flexibility Process selection and layout Costs, flexibility, skill level needed, capacity Work designQuality of work life, employee safety, productivity LocationCosts, visibility QualityAbility to meet or exceed customer expectations InventoryCosts, shortages MaintenanceCosts, equipment reliability, productivity SchedulingFlexibility, efficiency Supply chainsCosts, quality, agility, shortages, vendor relations ProjectsCosts, new products, services, or operating systems

2-10 Time- and Quality-Based Strategies Time-based strategies –Strategies that focus on the reduction of time needed to accomplish tasks It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved Quality-based strategy –Strategy that focuses on quality in all phases of an organization Pursuit of such a strategy is rooted in a number of factors: –Trying to overcome a poor quality reputation –Desire to maintain a quality image –A part of a cost reduction strategy

2-11 Agile Operations Agile operations –A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change Involves the blending of several core competencies: –Cost –Quality –Reliability –Flexibility

2-12 Productivity –A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity measures are useful for –Tracking an operating unit’s performance over time –Judging the performance of an entire industry or country

2-13 Productivity Measures

2-14 © Wiley Total Productivity: example Bluegill Furniture makes kitchen chairs. The weekly dollar value of its output, including finished goods and work-in-progress, is $14,280. The value of inputs (labor, materials, capital) is approximately $16,528. What is the total productivity measure for Bluegill? Total productivity = output/input = $14,280/$16,528 =.864 or 86.4%

2-15 © Wiley Partial Productivity: example Bluegill Furniture has hired 2 new workers to paint chairs. Together they have painted 10 chairs in 4 hours. What is labor productivity for the pair? Labor productivity = output/labor = (10 chairs)/(2 x 4 hr) = (10 chairs)/(8 hr) or 1.25 chairs/hr

2-16 © Wiley Multifactor Productivity: example Bluegill Furniture averages 35 chairs/day. Labor costs average $480, material costs are typically $200, and overhead cost is $250. Bluegill sells the chairs to a retailer for $70/unit. Find multifactor productivity. Multifactor productivity = (value of output)/(labor + material + overhead costs) = ($70/chair x 35 chairs)/( ) = ($2450)/($930) or 2.63

2-17 © Wiley Interpreting Productivity Measures Productivity measures must be compared to something, i.e. another year, a different company

2-18 Improving Productivity 1.Develop productivity measures for all operations 2.Determine critical (bottleneck) operations 3.Develop methods for productivity improvements 4.Establish reasonable goals 5.Make it clear that management supports and encourages productivity improvement 6.Measure and publicize improvements

2-19 The manager of a crew that installs carpeting has trucked the crew’s output over the past several weeks, obtaining these figures: WeekCrew Size Yards Installed

2-20 Compute labor productivity for each of the weeks.on the basis of calculation what can you conclude about labor productivity WeekCrew SizeYards InstalledLabor Productivity yards A crew of 2 seems to work best.

2-21 Compute the multifactor productivity for each of the weeks shown. what do productivity figures suggest ?assume 40 –hour weeks and an hourly wage of $12,overhead is 1.5 times weekly labor cost,material cost is $6 per pound. standard price is $140 per unit. WeekOutput workersMaterials 130, , , ,

2-22 (1)(2)(3)(4)(5)(6)(7) Worker WeekOutput $12x40 Overhead Material Total Cost MFP (2)  (6) Consider standard price* (7)x$ ,0002,8804,3202,7009, ,6003,3605,0402,82011, ,2003,3605,0402,76011, ,4003,8405,7602,88012, Multifactor productivity dropped steadily from a high of 3.03 to about 2.84.